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Supply Chain Management 101

Jack Mcgowan | Sep 01, 2007

You have probably read about Fortune 500 companies utilizing Supply Chain Management (SCM) initiatives and heard how they improved profitability, reduced operating expenses and more effectively utilized inventory. Indeed, a study by The Performance Measurement Group, Waltham, Mass., finds that some manufacturers with mature SCM practices are 40 percent more profitable than manufacturers with less mature SCM practices.

SCM allows for the efficient flow of product and the most effective utilization of resources. It covers all movement of materials and product inventory from point-of-origin to point-of-consumption and encompasses the planning and management of all activities involved in sourcing, procurement, manufacturing, distribution and logistics management. Coordination and collaboration with suppliers and customers are also part of SCM. In short, SCM integrates supply and demand management within and across companies.

Most of the companies to date that have re-engineered their processes and made large investments in SCM initiatives have been multi-billion dollar, multi-national corporations. How can SCM work in your distribution business? Let's take a look first at SCM, and then at your company. SCM improvement initiatives usually focus on three pillars:

Process

The steps/tasks required to efficiently execute a specific function.

People

The skills and knowledge required to satisfy the specific steps or tasks, including the education and training needed to elevate and sustain performance as well as culture and attitudes.

Technology

The tools necessary to support, enhance and measure performance of these business processes.

You have the same three pillars. Aren't these the same areas in your company that dictate how effective, overall, your company is or will be? The Performance Group study mentioned earlier also found that a maturation process must occur in your company to optimize both the performance and the benefits of SCM. This maturation process starts by recognizing that you are part of a supply chain. It's driven through your company by a “Lean Thinking” and a “Continuous Improvement” process that needs to be part of your company's culture. For information on these business philosophies, visit www.mcaassociates.com for a copy of the article, “Lean Thinking In Wholesale Distribution — Are You Ready For Little Miracles?” By using a Lean Thinking-Continuous Improvement process, SCM answers the following questions:

Connectivity

How well are my internal and external business functions communicating?

Collaboration

Are the functions making decisions sequentially or simultaneously?

Synchronization

Does everyone know the same thing at the same time?

Leverage

Do you know where to focus on SCM to optimize productivity and profitability?

Scalability

Can you replicate processes from one function, location, supplier, customer to another?

Lean Thinking-Continuous Improvement focuses on the tasks and functions, as well as on the “people enhancement” required to eliminate any non-valued-added steps in your company's operational processes. Typically, this business review is done within a company first, and can then be expanded to the company's customers and suppliers. The specific areas and processes within an electrical distributor that this review may cover include:

The National Association of Electrical Distributors (NAED), St. Louis, and the National Association of Wholesaler-Distributors (NAW), Washington, D.C., offer their members tools to measure these key SCM drivers. Whether it's electronic orders, vendor-managed inventory or new on-line applications and informational content, SCM can help you discover which metrics will best measure a process or function and foster a constant focus on driving performance through those metrics.

Now, let's look at your company. Your business has many of the same key functions as a much larger corporation, including procurement, operations, inventory management, sales, marketing, financial controls and delivery of value-added services. Each of these functions is made up of the same three “pillars”: process, people and technology. When first embarking on an SCM initiative, you will ask your management team many of the same questions that Fortune 500 leaders ask their key managers:

Are we doing things the right way? Is it the most efficient?

Is inventory being managed the same way by everyone in a location, or across locations?

Are we getting products from suppliers and to customers in the most efficient and responsive manner?

Smallness as a big advantage

Your size gives you distinct advantages when looking at SCM improvements. You probably operate lean now, so getting to root-causes and problem resolution will be faster. You are not spread across the country (or world), so proximity and accessibility allows changes to be implemented more quickly and easily. Your technology may be adequate, but you just may need to utilize it differently. If so, you can focus on the process and people pillars that will yield the most dramatic results.

The time is right. SCM and Lean Thinking-Continuous Improvement processes have been refined and pretty much standardized. The methods to get people involved (inside and outside your organization), the required training in the concepts, and the implementation activities required have been tested and proven. Take advantage of all the groundwork that has been done so you can quickly become an even more profitable company.

Jack McGowan is a senior consultant at MCA Associates, a management-consulting firm with offices in Connecticut and Florida. You can reach the firm's Connecticut office at (203) 732-0603; the Florida office at (561) 989-3221; or contact the company's management team by e-mail at[email protected].